This week's market rally on the mainland had been triggered partly by expectations Beijing would launch fresh economic stimulus and prop up the yuan currency, and also by a surge in Chinese lending in January.

However, Hong Hao, managing director of research at BOCOM International, says Beijing's policy mix can only temporarily stabilise growth expectations because there are growth limits on China's money supply, debt and investment.

"For market participants, the question is whether the technical reprieve is sustainable," Hong wrote on Wednesday.

Rate-sensitive sectors such as banks and property are already pricing in credit expansion, so "we should trade but not own this relief rally."

Most sectors, including banks and real estate fell in early trade, but infrastructure stocks gained nearly 1 percent on news that the government planned to allocate 400 billion yuan to fund infrastructure projects.

In Hong Kong, sentiment was soured by a slump in energy shares, with an index tracking the sector dropping 3.2 percent.